Development Land Tax

HC Deb 25 February 1976 vol 906 cc515-40

10.15 p.m.

The Paymaster-General (Mr. Edmund Dell)

I beg to move, That provision be made—

1. (1) for imposing a tax, to be known as development land tax, on the realisation of the development value of land on any occasion where an interest in the land is, or is treated as being, disposed of;
2. (2) for requiring certain bodies, to whom are made certain disposals of interests in land giving rise to liability for development land tax, to deduct amounts on account of that tax from the consideration paid for the disposals, for treating amounts so deducted as having been paid in respect of that tax by the persons liable for it, and for securing that those bodies receive the benefit of the whole of the development land tax paid in respect of those disposals;
3. (3) for terminating the charges on capital gains from land imposed by Part III of the Finance Act 1974;
4. (4) for adjusting the amount chargeable to income tax, corporation tax or capital gains tax in certain cases where the whole or part of the amount so chargeable is or has been chargeable to development land tax on the same or a previous occasion; and
5. (5) for other matters incidental or supplementary to the matters specified in the preceding paragraphs of this Resolution.

This resolution paves the way for the introduction of the Development Land Tax Bill—an essential part of the legislation necessary to give effect to the Community Land Scheme.

I shall not detain the House with a detailed description of the new tax. Honourable Members will be familiar with its main outlines from the 1974 White Paper "Land" and much of the detail from the publication of the Inland Revenue statement of 4th February 1975 and the White Paper "Development Land Tax" which was presented last August. In framing the legislation we have also had very wide consultations with representative bodies, and these have proved most valuable in the preparation of the Bill. If the House approves this resolution, I hope that hon. Members will be able to see the Bill by the end of the week.

There is, of course, already on the statute book, the development gains charge legislated in the Finance Act 1974 on the basis of the proposals put forward by Lord Barber in December 1973. The question may be asked why we should so soon change those provisions even taking account of the fact that the Opposition have since seemed rather less enthusiastic about them than when Lord Barber first announced them.

We have never disguised our feeling that, though a step in the right direction, these provisions do not provide an adequate long-term solution to the land question—and it is such a solution which we are endeavouring to provide. The development gains charge fails in the necessary criteria in formulating a tax on development gains in three main respects.

First, it is erratic in its impact, as it can result in a charge at a rate of anything from 0 per cent. to 83 per cent. This is inappropriate for a tax on values created by the community. Development land tax, on the other hand, makes a standard charge on development gains. Secondly, development gains charge is limited in its scope. In particular, it does not deal with development value realised in the form of trading profits, or in any income form, and does not cover non-residents. Development land tax, on the other hand, is comprehensive and covers gains in whatever form they are realised.

Mr. Graham Page (Crosby)

On a point of order, Mr. Speaker. Some hon. Members are interested in what the Paymaster-General is saying. We are quite unable to hear on this side of the House.

Mr. Speaker

Order. The House must come to order.

Mr. Dell

Thirdly, development gains tax does not, and cannot, provide machinery for giving effect to the principle to which we attach importance and which has been expressed also by the Royal Institution of Chartered Surveyors in its paper "The Land Problem—a Fresh Approach", which says: Where a gain stems from the local community's actions or decisions, the benefit of it should be directed to the local community". Development land tax, on the other hand, does make such provision through the net of tax arrangements.

It is widely accepted that increases in the value of land arising from the community's efforts, activities and decisions should be restored to the community and that the few should not reap large windfall gains at the expense of the community. As I understand it, the wide acceptance of that principle extends to the Opposition, the evidence for that proposition being not just Lord Barber's proposals of December 1973 but the statements of Opposition spokesmen during the discussion of the Government's Community Land Scheme.

Our proposal for development land tax has, of course, a particular role within the context of this Government's Community Land Scheme. But, in my view, within the context of any serious proposals for recovery for the community of the increases in value created by the community, a tax such as a development land tax must for the present have a role.

Mr. Timothy Raison (Aylesbury)

Could the Paymaster-General tell the House how he can possibly support, as a Treasury Minister, a Community Land Scheme that will add over £300 million to the public Exchequer in the next four years?

Mr. Dell

The effect of the Community Land Scheme over the years will greatly save the cost that the public has to pay for development.

The rate of tax and the exact scope of the tax are certainly appropriate subjects for debate and controversy, even among those who accept the principle. But I do not see how any hon. Member who holds to the principle of recovery of development values for the community can deny the present need for a tax of the kind we now propose. I know that some people who concede the need and the justification for a tax such as this consider that the proposed rate of 80 per cent. is too high and will dry up the supply of land. I of course accept that the land market has been depressed recently, but it would be quite wrong to lay the blame entirely or even in large part at the door of the proposed new tax. Many factors have contributed towards the present state of affairs, including the general economic climate and the excessive expectations of landowners based on the inflated prices that could have been attained from selling land for development a few years ago.

Mr. A. P. Costain (Folkestone and Hythe)

Will the right hon. Gentleman clarify one point? This tax having been paid, will capital gains tax be charged in addition?

Mr. Dell

I think that the hon. Gentleman should wait for the Bill, but I can tell him, in general, that we are not relieving capital gains tax where it applies at present.

Although, therefore, I would deny that the new tax or its prospect has been a primary factor in contributing towards the present state of the land market, I am sure we ought not now to do anything which might impede or delay its recovery. It is obviously essential that there should be a sufficient supply of land forthcoming in the next few years while local authorities are building up towards their full duties under the Community Land Act.

In order to assist the process of adjustment by landowners to the new land market, I have already announced two changes in our proposals and I should like to mention them once again.

First, we propose that the first slice of development value realised in any financial year which is to be exempt from development land tax should be increased from £5,000 to £10,000. Secondly, for the next three years, until 31st March 1979, the next slice of £150,000 of development value realised in any financial year over and above the exempt £10,000 slice will be charged at a rate of 66⅔ per cent. instead of 80 per cent. The 80 per cent. rate will remain for any development value realised in excess of those amounts. In other words, any development value realised in excess of £160,000 will be charged at 80 per cent.

These two changes will provide some incentive to the release of plots of land for development of a size with which the small and medium developer can cope. A ready market in such plots is important to developers for such purposes as in-filling and comparatively limited schemes of development. The two reliefs thus complement the measures taken by my right hon. Friend the Minister for Planning and Local Government in respect of what is known as "excepted development" under the Community Land Act 1975. As a result of these, local authorities will not have imposed on them the duty, though they will retain the power, to acquire small sites for private development where the development concerned will provide up to 1,000 square metres of floor space for non-industrial purposes and up to 1,500 square metres where the development is to be for industrial purposes. Here again, the intention is to avoid putting obstacles in the way of small development schemes.

Mr. Walter Clegg (North Fylde)

Merely for clarification, will the right hon. Gentleman say when the development land tax will come into operation?

Mr. Dell

I am coming to that precise point in a moment.

Mr. Peter Rees (Dover and Deal)

Will the right hon. Gentleman give way?

Mr. Dell

I think that I had better go on. This is a short debate. [Hon. Members: "No".]

Mr. Peter Rees

I am grateful to the right hon. Gentleman. May we take it that as the top rate is to be 80 per cent., there is no substance in the rumours current that, in fact, ordinary capital gains will be assimilated to unearned income by a measure in the next Finance Bill?

Mr. Dell

The hon. and learned Gentleman must wait both for this Bill and for the next Finance Bill.

Mr. Hugh Rossi (Hornsey)

I am sorry to interrupt the right hon. Gentleman, but my hon. Friends and I find a certain amount of confusion here. Did he say that excepted development would be free from development land tax? That was not perfectly clear from his statement just now.

Mr. Dell

What I said was that development value up to £10,000 would be exempt and the first £150,000 beyond that would be charged at 66⅔ per cent.

I now turn to the details of the resolution. Paragraph (1) gives general authority for imposing the new tax, and paragraph (2) authorises the inclusion in the Bill of provision for local authorities, and certain other comparable authorities, to acquire land net of tax.

Paragraph (3) is concerned with winding up the charges on development gains and also on first lettings which were introduced in the Finance Act 1974. The more comprehensive proposals we are now bringing forward render the continuance of these two charges unnecessary.

Paragraph (4) will allow the Bill to include provision for giving relief from tax on capital gains, corporation tax and income tax where liability to one of those taxes and to development land tax arises in respect of the same development value. The broad effect of those provisions will be that when there is liability both to development land tax and to one of those other taxes, the amount on which the other tax is charged will exclude the amount on which development land tax is charged.

There will also be circumstances in which it will be appropriate to give relief the other way round; that is to say, the relief for the other tax paid will be given against development land tax. Although there is not a specific reference to this in the resolution, provision for it to be done will be included in the Bill. Our proposals in this type of case are described in the White Paper "Development Land Tax". Paragraph (5) is supplementary.

The House will be interested in the Government's intentions regarding the appointed day for the purposes of development land tax. Of course, that date must depend on the passage of the Bill through the House. On the other hand, it is desirable to reduce the uncertainty that currently exists among local authorities and private developers by letting them know when development land tax will begin to operate. It has already been announced that the first appointed day for the Community Land Act will be 6th April 1976 in England. It will be the same date for Wales. My right hon. Friend the Secretary of State for Scotland is consulting the Convention of Scottish Local Authorities as to whether, in the aftermath of local government reorganisation in Scotland, the first appointed day for the Community Land Scheme in Scotland should be a few months later than in England and Wales.

Our target for the appointed day for development land tax is 1st August 1976. The House will, however, realise that the Inland Revenue will require some weeks of preparation after enactment of the Bill before the tax can operate. We would therefore hope to be out of Committee by the end of May. There will be plenty of time for the various stages of this rather long Bill. Nevertheless, if the acquisition and development of land is not to be impeded, it will be necessary to complete the legislative process some weeks before 1st August, otherwise the appointed day would have to be delayed, with undesirable consequences. I recognise that the Bill comes forward later than we had intended, but the reasons for that include the extensive consultations of which we have taken considerable account in the drafting.

I commend the resolution to the House.

10.27 p.m.

Mr. Hugh Rossi (Hornsey)

I shall follow the example of the Paymaster-General and refrain from going into matters of great detail. I do so because we shall in due course have a Second Reading debate on the Bill itself.

I shall indicate a number of general principles which influence the thinking of my right hon. and hon. Friends. Probably the most important thing to be said is that there is no real difference of opinion between the Government and the Opposition in that we accept that increases in the value of land purely as a result of the grant of planning permission or community activity should be taxed more heavily than other capital gains. I am aware that some of my right hon. and hon. Friends hold the view that planning control artificially depresses land values, and that when land receives planning permission that does no more than readjust the value to its correct level. I do not think that is completely true. Continuing planning restrictions on other land may maintain a supply below demand, thereby raising the value of land with permission beyond that which it might attain in a completely free situation.

The grant of planning permission can result in a substantial windfall, due to no activity on the part of the owner, which it is right to tax. I go further and say that it is necessary to tax such windfalls. Possibly nothing has caused more public resentment in recent years than the making of what some consider to be unconscionable gains from land speculation, especially at a time when there was restraint on income and difficulty in finding homes to buy at prices that many people could afford to pay.

The Conservative Administration tried to meet that situation by the development gains tax proposals of 17th December 1973. With hindsight it is fair to say that in those proposals we over-reacted to the situation. It is only fair to say that these were but proposals upon which the then Chancellor was open to receive representations and to which modifications would have been made in answer to those representations. Unfortunately, we were overtaken by the February 1974 General Election, and the new Government implemented our proposals without looking at them critically or heeding outside voices. If they had looked at them critically, in the way we would have done, subsequent events would not have followed.

Thus, as to both its rate and its level there were fundamental weaknesses in the development gains tax. We would not wish to return to or support, for example, an 80 per cent. rate, or a levy on first lettings.

In proposing the development land tax in place of the development gains tax the Government are introducing a number of new, objectionable factors, for example, a payment on the commencement of development. Above all, in levying a tax of this nature, a careful analysis has to be made as to the kind of gain which is to be taxed. In our view, the Government have not done this correctly, and here we join issue with them.

The right hon. Gentleman has mentioned that he has been influenced in preparing his Bill by the paper presented by the Royal Institution of Chartered Surveyors entitled "The Land Problem—A Fresh Approach." If the Bill we are to see relates in any way to the White Paper that we have seen the right hon. Gentleman will not have paid a great deal of attention to this paper, which long pre-dated the Government's White Paper. Where he has signally failed is in analysing the kind of gain that should be subject to a development tax.

There are several elements to be considered in any gain in the value of land. There is, first of all, the increment in value resulting from inflation or changes in social needs or demands such as commercial and industrial activity, which have nothing to do with central or local government activity. There is no reason why such gains should be taxed any differently from capital gains realised from disposal of other assets. Next, there is the gain in value resulting from the actual development or work carried out on the land. There is no reason why use of skills, capital investment and the taking of financial risks should be taxed any differently from any other commercial or industrial activity. The developer is entitled to a proper reward for his efforts. It is contrary to the economic well-being of our society to discourage or penalise him in any way—as the Government's proposals, so far as we know them, appear to do.

Thirdly, there is the gain resulting from community activity, such as the construction of new transport facilities or community decisions in the planning sphere. All of these may greatly enhance land value. Here we would agree that a special tax over and above the ordinary capital gains tax should be payable. It is, however, only in this area that we feel that development land tax is properly payable. According to the many discussions we have had with interested bodies, it is the only area in which a special tax is generally acceptable. Consensus, as the right hon. Gentleman knows, is important in all areas of taxation. A tax must be felt to be fair, otherwise there will be wholesale evasion if the law is loosely drafted. If that is not possible because the law is tightly drafted, there will be stagnation in an important activity because of the tax that is imposed.

Our concern is to seek a level of tax which will be seen to deal effectively with unconscionable land speculation while leaving sufficient incentive for the landowner to bring forward his land for development voluntarily—not compulsorily as provided for in the Community Land Act—and for the developer to use his entrepreneurial skills to go about the business he knows best in his own way.

Local authorities are not equipped to undertake the tasks of land identification and development. The powers given to them in the Act to suspend planning permission while they consider the acquisition of the land on confiscatory terms will stultify commercial development activity, dry up the supply of land and inhibit housebuilding programmes, especially the building of houses for sale in the private sector.

On the advice we have so far received, development land tax on windfall gains arising from community activity or decisions should be at the same level as corporation tax for non-closed companies—about 52 per cent.—and not 66⅔ per cent. or 80 per cent. We welcome the de minimis exception of the first £10,000 for tax, but the 66⅔ per cent. for the next three years on the next £150,000 is too much of a disincentive and the 80 per cent. will be totally self-defeating.

I am grateful to the Paymaster-General for the modest concessions to the original proposals which he announced in reply to a recent question of mine, but I regret they do not go far enough. They will not be of any real value.

The Paymaster-General also told me recently that excepted development, as a class, would not be exempt from development land tax except when it fell within the minor concessions to which I have just referred. That does not go far enough either. For example, excepted development could include the reconstruction of a destroyed building. That might well be outside the £10,000 development value and could even be outside the £150,000 value, yet it will not be exempt from the tax because excepted development is not being exempted.

It is not right or productive to treat a development gain as being realised as soon as development is commenced. We would prefer the tax to fall when the gain is realised and the development has been completed. That would reduce the cost of the development, which is particularly important in housing, and no tax would be payable if no gain were realised and the development made a loss, as sometimes happens.

The attraction to local authorities of the combined Community Land Act and Development Land Tax Scheme is that every one which takes part will retain 30 per cent. of any surplus it makes on the difference between land acquisition and land disposal, essentially out of the tax element after deducting administration, financing and management costs. What remains for the authority to bear outside the land scheme and the community land accounts are the off-site infrastructure costs. Yet the cost of providing the road lighting, sewerage facilities and school recreation centres consequential upon large-scale development frequently deters local authorities from readily granting planning permission, thereby slowing down much-needed development and artificially raising land prices.

Rather than the elaborate bureaucratic scheme to give developers credit under the Community Land Act, the same purpose would be more readily served by encouraging them to make contributions to the infrastructure costs. That could be either in cash, for small schemes, or in kind, for larger schemes—for example, the provision of sites for public open spaces, schools, community centres and so on. My information is that developers would willingly do that in return for a more forthcoming attitude on the part of planning authorities in the grant of planning permission. Planning delays cost them money, and they would rather make a positive contribution to the community than undergo delays.

The local authorities would benefit in that they would take no risk of development as they will under the Community Land Act, and they would receive a contribution to the infrastructure costs which they will not under the Community Land Act. Such a scheme would also accelerate the bringing forward of land for development, whereas the Community Land Act will have the reverse effect.

The Government's approach is totally wrong and will inflict great injury upon development, and for that reason I invite my hon. and right hon. Friends to vote against the motion.

10.42 p.m.

Mr. Arthur Blenkinsop (South Shields)

I intervene briefly to make clear the attitude of Labour Members to the speech made by the hon. Member for Hornsey (Mr. Rossi). The hon. Gentleman made clear that the Opposition are concerned for the people who made windfall profits in days gone by. His suggestion that those people regarded the then Conservative Government's reaction as over-reaction is a matter for cynical laughter. As he did during the passage of the Community Land Bill, the hon. Gentleman displayed his determination to deny to local authorities the effective power for positive planning which we believe to be essential.

Many of my hon. Friends and I are concerned that the original proposal for the 80 per cent. tax is not being proceeded with, and that the concession to some extent diminishes the value of the proposals to the local authorities. We shall wish to examine the matter carefully before we are satisfied that the concession is necessary. Apart from that, we welcome the motion, which I hope will have unanimous consent.

10.43 p.m.

Mr. Graham Page (Crosby)

I offer the Paymaster-General my congratulations, and my commiserations for having entered the elaborate maze of the Community Land Act and the coming Development Land Tax Bill. I declare an interest as director of a property trust company, and I promise the right hon. Gentleman a miserable time.

The right hon. Gentleman has not had a happy send-off. To start with, he has had to perform an embarrassing climb-down. I am reminded of the old music hall song "Don't come down the ladder, dadda, they have taken it away". The right hon. Gentleman's colleagues took away that ladder.

For a hundred or more hours of debate on the Community Land Bill, we complained that it would dry up the supply of land, and that was at the time when the right hon. Gentleman's colleagues were advocating an 80 per cent. tax rising to 100 per cent. I would not accuse the Minister for Planning and Local Government of having any sort of mind of some foreign extraction, but he has an obstinate mind, if I may say so in the politest way. He and the Under-Secretary of State obstinately refused to consider that an 80 per cent. tax rising to 100 per cent. would dry up the supply of land. They poured scorn on the idea.

Then, hey presto! The Paymaster-General comes into the arena and, when asked by my hon. Friend the Member for Hornsey (Mr. Rossi) what representations he has received that a development tax at the rate of 80 per cent. would diminish the supply of land for housing, he replies that he has noted the concern expressed about the subject of land for housing and makes the announcement about the reduction from the 80 per cent. tax rate.

The Minister for Planning and Local Government (Mr. John Silkin)

Does the right hon. Gentleman really think that he is the best person to prophesy about land? Does he not remember that on the occasion of the dissolution of the Land Commission he told us that it was being done in order to stabilise the price of land? We then saw the biggest increase in land prices in the history of the country.

Mr. Page

I remind the right hon. Gentleman that the last Labour Government introduced the Land Commission and all that paraphernalia in order to reduce the value of land, but that it shot up by 300 per cent. To suggest that the abolition of the Land Commission procedure increased the value of land is entirely wrong.

Mr. John Silkin

I think that the right hon. Gentleman had better look at the figures. The value of land went down 4 per cent. He never contradicted me when I pointed that out.

Mr. Page

I have given the figures that I believe to be correct.

I was congratulating the Paymaster-General on climbing down the ladder from the 80 per cent. rung to the 66⅔ per cent. rung. I wish that his colleagues had taken away the ladder below that 66⅔ per cent. If he had come down to 52 per cent., as my hon. Friend has said, and also kicked away the whole paraphernalia of confiscation of land under the Community Land Act, I would have been full of praise for him.

As it is, my applause is tempered with a modicum of reserve. First, the climb-down is only temporary, just for a period of years until 1979. If the tax is stopping the supply of land now, why is it so likely not to stop it in 1979? Presumably it is because the Government hope that by that time the Community Land Scheme will have got cracking and have grabbed enough land to distribute it amongst the chosen few.

But the White Paper on Public Expenditure says that in the year 1979–80 all that this great scheme is going to produce by way of distribution to those who need the land to build homes, factories, offices, and so on, is 5,500 acres. Does the right hon. Gentleman really think that that is going to be sufficient land for one year's development? What is the Government's estimate of the land which will come forward in 1979–80 in addition to the 5,500 acres when the tax has gone up to 80 per cent. of realised development value? The White Paper on Public Expenditure plus the Paymaster-General's recent statement, taken together, really make the situation quite ludicrous.

My criticism of the Government's scheme, the Community Land Act, and the Development Land Tax Bill that is coming, does not imply that I do not believe in some taxation of realised development value.

I am convinced that the reasonable and practical way of doing this would be: first, scrap the seizure of land under the Community Land Scheme; second, tax the realised—I stress "realised"—development value within the ordinary tax system, and I put the figure at 52 per cent.; third, have a fairly high exemption figure, say £20,000, and not the £10,000 at present suggested by the Paymaster-General; fourth, not to increase the scale of tax with the size of annual development, because this is a wholly wrong policy, because the result is a sort of toothpaste tube development, squeezing out a small amount each year in order to get the benefits of the lower scale of tax; fifth, allow credits for developers' expenditure on infrastructure, as my hon. Friend the Member for Hornsey has already stated; last, see that the lion's share of the tax goes to the local authorities and not to the Exchequer.

We cannot amend a Ways and Means Resolution. We have to consider what is before us tonight. We cannot vote upon any such reasonable proposition as I have put to the House. We are asked to give our blessing to a tax on any occasion where an interest in the land is, or is treated as being, disposed of. We know what that means from the White Paper, which gives us a draft of the future Bill. One is assumed to dispose of land when one digs a trench in order to develop that land. It really is ludicrous to have to pay a tax when one starts a development, before one has realised any value from it.

Then we are asked in the resolution to consider "certain bodies" which are to deduct the tax from the purchase money. There is no mention of Church property, charities, pension funds, and so on. There is no mention even of the Paymaster-General's concessions made in a recent statement in answer to a Parliamentary Question.

I call this a climb-down by the Paymaster-General from what his colleagues have been preaching for the past two years. I might better have called it a somersault. At any rate, it is a very clumsy circus turn, with the clowns at their craziest.

The Government having found the folly of their levy, I ask them to abandon it at this stage. If they do, I assure them that we shall assist them in devising a modest form of ordinary taxation upon development gains.

10.54 p.m.

Mr. Douglas Crawford (Perth and East Perthshire)

I wish to concentrate my remarks solely on the position of small builders, particularly those in Scotland. There are several matters that concern me in this context and I have one or two questions to put to the Minister.

First, why should there be a liability for tax on the part of a builder when he commences his development? This point was made by the right hon. Member for Crosby (Mr. Page). I ask this because I believe that it could damage the cash flow position of a small builder. It could well mean that if he wishes to build houses he will not have the cash resources to do so.

Why is it proposed that the tax should be levied as soon as the first trench is dug by the small builder? Is it not possible to delay the point in time at which he is liable for tax, allowing him to sell some houses and to make some profit, so that the positive cash flow can be maintained and he can afford to pay the tax as a result?

Small builders in Scotland in general, and no doubt in England, are in business not to speculate but to build houses, and I suggest that the present proposals militate against the building of houses. Small builders hold land as "stock in trade" and not, as these proposals suggest, as some kind of volatile currency.

Is it not possible to introduce a two-tier system? I realise that there is some relaxation for profits under £160,000, but I am suggesting a change in the system so that bona fide small builders—employing, say, fewer than 100 people—can be freed from DLT and can pay corporation tax in the normal way on their land purchases and their efforts to build houses. This was implicit in the development gains tax produced by the last Conservative Government in 1973.

Is it not possible, before the Bill is introduced, somehow to simplify the system? With the workings of capital transfer tax, corporation tax and the Community Land Act, the system has become too cumbersome. Small builders are also facing inflation. There has grown up needlessly a large corpus of specialists and consultants to large building companies and the real speculators. This is inflationary and, for the small builder, prohibitively expensive.

If the land tax system cannot be simplified, I would say that the Government are using a sledgehammer to crack a nut and are doing nothing radical about those large tracts of Scotland which are used for the sporting pleasures of the few. The Government will do a grave disservice to small builders in Scotland. The Scottish National Party believes that the whole land position of Scotland should be a matter for discussion and decision by the Scottish Assembly.

10.57 p.m.

Mr. Tim Sainsbury (Hove)

I do not want to follow the valid comments of the hon. Member for Perth and East Perthshire (Mr. Crawford) about small builders but simply to put three questions.

The Paymaster-General referred to consultations with interested bodies. Can he say which professional and expert bodies support the Government's proposals? There is an Advisory Group on Commercial Property. Why has it not been asked specifically to comment on the Government's proposals and their likely effect on the availability of land for commercial and industrial property development?

As usual, my right hon. Friend the Member for Crosby (Mr. Page) put his finger on the most vital point—the supply of land. Does the Paymaster-General recognise the importance of an adequate supply of land to an adequate supply of houses and the inevitable action of an effective supply of land on the price of houses? If he does, why will he not take the Resolution away, think about it again and come back with something sensible rather than doctrinaire?

10.58 p.m.

Mr. Michael Latham (Melton)

I declare an interest as a director of a company building several hundred private houses a year.

Even the proposed rate of development land tax is too high. In the land market at the moment, land is coming forward with planning permission—much of it from receivers and from builders closing down their businesses—and that will help to keep the programmes going for the next 12 to 18 months. But builders are not buying land without planning permission or land for future stock without planning permission—white land—because they are afraid of having it confiscated under the Community Land Act. In three years there will be no land left at all. As the National House Builders Federation has said, house building will then come to a complete stop.

There is a simple way of dealing with this. The Government could say that the rate of tax will be 60 per cent.—full stop; with no question of a three years' time limit; and that that will continue. That would be an adequate and satisfactory solution for many people.

Mr. Graham Page

Too high.

Mr. Latham

They must drop the idea that the local authorities will be the basic providers of land in the future. There is not one builder in this country who has any confidence that he can look to the local authorities to provide him with land in the future. That is no way to get houses built in this country.

11.0 p.m.

The Minister of State, Treasury (Mr. Denzil Davies)

I shall deal briefly with some of the points which have been made.

I hope that I can clarify some of the confusion expressed by the hon. Member for Hornsey (Mr. Rossi). In his opening speech he agreed that unconscionable gains arising out of land speculation should be taxed. Therefore there is common ground and consensus between us on that point. He reverted to Lord Barber's proposal and says now, with hindsight, that the taxation which the Conservatives were proposing was too high. I remind him that the rate which was proposed by Lord Barber, and which was implemented by us, was the top rate of 83 per cent. Therefore, if anything has happened in the past two years to dry up the supply of land and if taxation has had an effect—there are many reasons why the supply of land may have dried up—a tax rate of 83 per cent. which was introduced in the proposals of a Conservative Chancellor must have had an effect.

I do not think that any hon. Member can say that our proposals will dry up the supply of land. Indeed, if any Opposition Members do so, I simply point out that the proposals of a Conservative Chancellor in 1973 did exactly the same thing.

Mr. Rossi

The Minister has forgotten the passage in which I stated that we were receiving representations and were prepared to make modifications. The hon. Gentleman's Government jumped in with big feet and picked up the cards on the table without looking at them too closely.

Mr. Davies

We hear about that passage now, but we heard little about it in 1973. I should have thought that if a Chancellor of the Exchequer brought forward proposals specifying a specific rate, those proposals should be taken seriously. It is easy when in Opposition to look back and say "We did not mean it. We want to change it."

Mr. Raison

Does the Minister believe that this tax rate has played any part in the drying up of the land supply?

Mr. Davies

No, I do not think so. Many factors are involved, not least, of course, the policy of printing money which the previous Conservative Government adopted. That policy more than anything else has affected the property market, and if Conservative Members were honest they would admit that.

I turn to the latest Opposition proposals. They plan to drop the rate of development land tax, or whatever we care to call it, from 83 per cent. to 52 per cent. Therefore, if a man or a company made a development gain of £1 million, almost £500,000 would be retained by the vendor. They are prepared to see a situation where almost £500,000—almost half of the £1 million development value—is retained in the hands of the man who has made that profit purely as a result of community action and not because of what he himself has done. In fact, the tax rate will be lower than the tax rate on many other activities which are considered to be much more worth while and where people create wealth on their own. The Opposition are now asking for a reduction to 52 per cent. Most people would say that that was too low a rate, and that a rate of 66⅔ per cent. on up to £150,000, rising to 80 per cent., is much fairer.

Mention has been made of an increase in the development value because of inflation. I do not understand that. I should have thought that development value rises not necessarily because of inflation but because of granting planning permission and various other actions. The hon. Member for Hornsey was not clear. We are not here taxing the profits of the developer. We are not here taxing the profits of a good development or the man who makes the good development. That man will be taxed in exactly the same way as he was taxed previously. If he is an individual who is trading, he pays income tax at the normal rate. If he is a company, he pays corporation tax. The development value—it is different from the profit from development—which is created quite outside and apart from the calibre of the development—

Mr. Sainsbury

The betterment.

Mr. Davies

Yes, or the betterment. The development value should be taxed in a different way from the actual profits of a good development. So we are not taxing the fair and honest profits of good development.

Mr. Rossi

There are two elements to that equation. Any development does two things. First there is the tax on the development actually carried out. But the development in itself enhances the value of land, and under the Government proposals that enhancement of the value will be taxable. That is quite distinct from the tax on the development operation itself. If I am mistaken in that, I hope that the Bill will make the matter perfectly clear and I hope that the Minister will assure us that he will accept such amendments to the Bill as may be necessary to make sure of its effect.

Mr. Davies

I have made this point clear. It will not be necessary to accept amendments. The profits of carrying out a development will be higher if it is a good development and the tax will therefore be higher. We are discussing a profit arising. It may arise to the vendor of the land, or it may arise to the developer who buys it at low cost and therefore secures a part of the value. The ordinary profit of the development itself and the carrying out of the development will be treated as it is at the moment under existing legislation.

Perhaps I may turn to the point made by the right hon. Member for Crosby (Mr. Page). He said that we should tax realised gains within the ordinary tax system at 52 per cent He has failed to realise that the ordinary tax system would tax those gains by the individual at up to 83 per cent as Lord Barber, when he was Chancellor of the Exchequer, and his right hon Friends provided What the right hon Member for Crosby said is gobbledegook It makes no sense. I wish that the Opposition would get this issue clear in their minds instead of coming forward with these half-baked claims. There is no excuse for not understanding this matter. There has been a White Paper and the subject has been often dealt with in professional journals.

Mr. Peter Rees

Will the Minister clarify one point? Am I to understand that a sole trader who is a developer in so far as his gain comprises a development gain of that type will pay a rate of 80 per cent. whereas if it were a trading action, a dealing profit, the rate might have gone up to 83 per cent.? Will the sole trader be slightly better off under the Government's proposals?

Mr. Davies

Yes, exactly. I would expect the hon and learned Gentleman to get that right, and he has.

I turn to the point raised by the hon. Member for Perth and East Perthshire (Mr. Crawford) who made a plea for the small builders in Scotland. If such a builder makes a development value profit—although very often it might be the farmer who makes the profit because he will sell to the builder—he will not pay tax on the first £10,000, and the balance up to £150,000 will be taxed at 66⅔ per cent. That is not an unreasonable rate of tax on that kind of gain which arises to the builder not because of his building skills. It might arise because he has secured a good price in buying from the farmer, and that rate of tax is reasonable for a windfall gain.

Mr. Crawford

Does the Minister not agree that taxation of 66⅔ per cent. and up to 80 per cent. will cripple the cash flow position of the small builder?

Mr. Davies

No, I would not agree. There are various rates of tax. The small builder will not be affected in that way, because of the exemptions in the Bill.

The Bill will make clear the situation over capital gains tax. As I understand the position, basically, the development tax is charged at 66⅔ per cent. or 80 per cent., as the case may be, on the development value. In effect—although possibly this is not the way it might be set out—the capital gains tax will continue on the increase in the current use value. A farmer, therefore, who sells agricultural land with planning permission will pay at development tax rates on the development value. But he will, in effect, pay capital gains tax on the increase in current use value, which may not be very great. It entirely depends on the value when he acquired the land, and it will often be very small for agricultural land. The balance, the development value, will be taxed at the development tax rate.

Mr. Graham Page

The Resolution says: for terminating the charges on capital gains from land imposed by Part III of the Finance Act 1974". Surely that means termination of capital gains.

Mr. Davies

The right hon. Gentleman is not at his best tonight. The Finance

Act 1974 carried out the proposals of Lord Barber to turn a capital gain into an income gain and tax these gains as income gains by a cumbersome and complicated procedure. That reference deals merely with that situation. I think that the right hon. Gentleman understands what is meant—that capital gains tax is paid on the current use value and development tax is paid on development value.

Mr. Sainsbury

It might be helpful if the hon. Gentleman stopped referring to development value and spoke of betterment, the term used by the Royal Institution of Chartered Surveyors in "The Land Problem—A Fresh Approach", to which his right hon. Friend referred. Can he tell us which professional institutions support the Government's proposals?

Mr. Davies

If the hon. Gentleman wants to refer to it as betterment, he can, and I will refer to it as development. We can probably agree that we mean the same thing.

A number of organisations were consulted on a number of detailed points, and we often accepted their recommendations. The Bill has possibly taken longer to come to the House because of that consultation, but we thought it right to consult all those bodies.

We believe that this kind of tax is the coherent way to deal with the problem. The Opposition have put forward no credible suggestions. They want merely to reduce substantially the tax on these windfall gains, from 83 per cent. to 52 per cent. We believe that that is not acceptable to the majority of the British people, who think that most of the gains should accrue to the community—the local community and the central Exchequer.

Question put:—

The House divided: Ayes 249, Noes 211.

Division No. 70.]	AYES	[11.13 p.m.
Anderson, Donald	Boothroyd, Miss Betty	Cocks, Michael (Bristol S)
Archer, Peter	Bottomley, Rt Hon Arthur	Cohen, Stanley
Armstrong, Ernest	Boyden, James (Bish Auck)	Colquhoun, Ms Maureen
Atkins, Ronald (Preston N)	Bray, Dr Jeremy	Conlan, Bernard
Bagier, Gordon A. T.	Brown, Hugh D. (Provan)	Cook, Robin F. (Edin C)
Barnett, Guy (Greenwich)	Brown, Robert C. (Newcastle W)	Corbett, Robin
Barnett, Rt Hon Joel (Heywood)	Buchan, Norman	Cox, Thomas (Tooting)
Babes, Alf	Buchanan, Richard	Craigen, J. M. (Maryhill)
Bean, R. E.	Butler, Mrs Joyce (Wood Green)	Crawshaw, Richard
Beith, A. J.	Callaghan, Jim (Middleton & P)	Cronin, John
Benn. Rt Hon Anthony Wedgwood	Campbell, Ian	Crosland, Rt Hon Anthony
Bennett, Andrew (Stockport N)	Canavan, Dennis	Cryer, Bob
Bishop, E. S.	Cant, R. B.	Cunningham, Dr J. (Whiten)
Blenkinsop, Arthur	Carter, Ray	Davidson, Arthur
Boardman, H.	Cartwright, John	Davies, Bryan (Enfield N)
Booth, Rt Hon Albert	Clemitson, Ivor	Davies, Denzil (Llanelli)
Deakins, Eric	Kerr, Russell	Rodgers, George (Chorley)
Dean, Joseph (Leeds West)	Kilroy-Silk, Robert	Rodgers, William (Stockton)
Dell, Rt Hon Edmund	Kinnock, Neil	Rooker, J. W.
Dempsey, James	Lambie, David	Roper, John
Doig, Peter	Lamborn, Harry	Rose, Paul B.
Dormand, J. D.	Lamond, James	Ross, Stephen (Isle of Wight)
Douglas-Mann, Bruce	Latham, Arthur (Paddington)	Ross, Rt Hon W. (Kilmarnock)
Duffy, A. E. P.	Leadbitter, Ted	Rowlands, Ted
Dunn, James A.	Lestor, Miss Joan (Eton and Slough)	Sandelson, Neville
Eadie, Alex	Lewis, Ron (Carlisle)	Sedgemore, Brian
Edge, Geoff	Litterick, Tom	Shaw, Arnold (llford South)
Edwards, Robert (Wolv SE)	Loyden, Eddie	Sheldon, Robert (Ashton-u-Lyne)
Ellis, John (Brigg & Scun)	Lyon, Alexander (York)	Shore, Rt Hon Peter
Ellis, Tom (Wrexham)	Lyons, Edward (Bradford W)	Short, Rt Hon E. (Newcastle C)
Evans, loan (Abordare)	Mabon, Dr J. Dickson	Short, Mrs Renée (Wolv NE)
Ewing, Harry (Stirling)	McCartney, Hugh	Silkin, Rt Hon John (Deptford)
Faulds, Andrew	McElhone, Frank	Sillars, James
Fernyhough, Rt Hon E.	McGuire, Michael (Ince)	Silverman, Julius
Fitch, Alan (Wigan)	Mackintosh, John P.	Skinner, Dennis
Flannery, Martin	Maciennan, Robert	Small, William
Fletcher, Ted (Darlington)	McMillan, Tom (Glasgow C)	Smith, Cyril (Rochdale)
Foot, Rt Hon Michael	McNamara, Kevin	Smith, John (N Lanarkshire)
Ford, Ben	Madden, Max	Snape, Peter
Forrester, John	Magee, Bryan	Spearing, Nigel
Fowler, Gerald (The Wrekin)	Mallalieu, J. P. W.	Spriggs, Leslie
Fraser, John (Lambeth, N'w'd)	Marks, Kenneth	Stallard, A. W.
Freud, Clement	Marquand, David	Stoddart, David
Garrett, W. E. (Wallsend)	Marshall, Dr Edmund (Goole)	Stott, Roger
Gilbert, Dr John	Marshall, Jim (Leicester S)	Strang, Gavin
Ginsburg, David	Mason, Rt Hon Roy	Strauss, Rt Hon G. R.
Golding, John	Meacher, Michael	Summerskill, Hon Dr Shirley
Gould, Bryan	Mellish, Rt Hon Robert	Taylor, Mrs Ann (Bolton W)
Gourlay, Harry	Mendelson, John	Thomas, Jeffrey (Abertillery)
Graham, Ted	Millan, Bruce	Thomas, Mike (Newcastle E)
Grant, George (Morpeth)	Miller, Dr M. S. (E Kilbride)	Thomas, Ron (Bristol NW)
Grant, John (Islington C)	Mitchell, R. C. (Soton, Itchen)	Thorne, Stan (Preston South)
Grocott, Bruce	Molloy, William	Tierney, Sydney
Hamilton, W. W. (Central Fife)	Moonman, Eric	Tinn, James
Hardy, Peter	Morris, Charles R. (Openshawe)	Tomlinson, John
Harper, Joseph	Morris, Rt Hon J. (Aberavon)	Torney, Tom
Harrison, Walter (Wakefield)	Mulley, Rt Hon Frederick	Tuck, Raphael
Hart, Rt Hon Judith	Murray, Rt Hon Ronald King	Urwin, T. W.
Hattersley, Rt Hon Roy	Newens, Stanley	Varley, Rt Hon Eric G.
Hayman, Mrs Helene	Noble, Mike	Waiden, Brian (B'ham, L'dyw'd)
Heffer, Eric S.	Oakes, Gordon	Walker, Harold (Doncaster)
Hooley, Frank	Ogden, Eric	Walker, Terry (Kingswood)
Horam, John	O'Halloran, Michael	Ward, Michael
Howell, Rt Hon Denis	O'Malley, Rt Hon Brian	Watkins, David
Howells, Geraint (Cardigan)	Orme, Rt Hon Stanley	Watkinson, John
Huckfield, Les	Ovenden, John	Weetch, Ken
Hughes, Rt Hon C. (Anglesey)	Padley, Walter	White, Frank R. (Bury)
Hughes, Robert (Aberdeen N)	Palmer, Arthur	White, James (Pollock)
Hughes, Roy (Newport)	Pardos, John	Whitehead, Phillip
Hunter, Adam	Park, George	Whitlock, William
Irvine, Rt Hon Sir A. (Edge Hill)	Parry, Robert	Willey, Rt Hon Frederick
Jackson, Colin (Brighouse)	Pavitt, Laurie	Williams, Alan (Swansea W)
Jackson, Miss Margaret (Lincoln)	Peart, Rt Hon Fred	Williams, Alan Lee (Hornch'ch)
Janner, Greville	Pendry, Tom	Williams, Sir Thomas
Jay, Rt Hon Douglas	Penhaligon, David	Wilson, William (Coventry SE)
Jeger, Mrs Lena	Perry, Ernest	Wise, Mrs Audrey
Jenkins, Rt Hon Roy (Stechlord)	Phipps, Dr Colin	Woodall, Alec
John, Brynmor	Price, C. (Lewisham W)	Woof, Robert
Johnson, James (Hull West)	Price, William (Rugby)	Wrigglesworth, Ian
Johnson, Walter (Derby S)	Redice, Giles	Young, David (Bolton E)
Jones, Alec (Rhondda)	Rees, Rt Hon Merlyn (Leeda S)
Jones, Barry (East Flint)	Roberts, Albert (Normanton)	TELLERS FOR THE AYES:
Jones, Dan (Burnley)	Robertson, John (Paisley)	Mr. James Hamilton and
Judd, Frank	Roderick, Caerwyn	Mr. Donald Coleman.
Kaufman, Gerald
NOES
Adley, Robert	Bottomley, Peter	Chalker, Mrs Lynda
Aitken, Jonathan	Bowden, A. (Brighton, Kemptown)	Channon, Paul
Alison, Michael	Boyson, Dr Rhodes (Brent)	Churchill, W. S.
Amery, Rt Hon Julian	Bradford, Rev Robert	Clark, Alan (Plymouth, Sutton)
Arnold, Tom	Braine, Sir Bernard	Clark, William (Croydon S)
Atkins, Rt Hon H. (Spelthorne)	Brown, Sir Edward (Bath)	Clarke, Kenneth (Rushclitte)
Awdry, Daniel	Bryan, Sir Paul	Clegg, Walter
Baker, Kenneth	Buchanan-Smith, Alick	Cooke, Robert (Bristol W)
Bennett, Dr Reginald (Fareham)	Budgen, Nick	Cope, John
Biffen, John	Bulmer, Esmond	Cordle, John H.
Biggs-Davison, John	Burden, F. A.	Corrie, John
Blaker, Peter	Butler, Adam (Bosworth)	Costain, A. P.
Boscawen, Hon Robert	Carlisle, Mark	Crawford, Douglas

Crouch, David	Knight, Mrs Jill	Rippon, Rt Hon Georfrey
Crowder, F. P.	Knox, David	Roberts, Michael (Cardiff NW)
Dean, Paul (N Somerset)	Lane, David	Roberts, Wyn (Conway)
Dodsworth, Geoffrey	Langford-Holt, Sir John	Rodgers, Sir John (Sevenoaks)
Douglas-Hamilton, Lord James	Latham, Michael (Melton)	Ross, William (Londonderry)
du Cann, Rt Hon Edward	Lawrence, Ivan	Rossi, Hugh (Hornsey)
Dunlop, John	Le Marchant, Spencer	Rost, Peter (SE Derbyshire)
Durant, Tony	Lester, Jim (Beeston)	Royle Sir Anthony
Dykes, Hugh	Loveridge, John	Sainsbury, Tim
Eden, Rt Hon Sir John	MacCormick, Iain	St. John-Stevas, Norman
Edwards, Nicholas (Pembroke)	McCrindle, Robert	Scott-Hopkins, James
Elliott, Sir William	Macfarlane, Neil	Shaw, Giles (Pudsey)
Ewing, Mrs Winifred (Moray)	MacGregor, John	Shaw, Michael (Scarborough)
Eyre, Reginald	Madel, David	Shelton, William (Streatham)
Fairbairn, Nicholas	Marten, Neil	Shepherd, Colin
Fairgrieve, Russell	Mather, Carol	Shersby, Michael
Farr, John	Maude, Angus	Silvester, Fred
Finsberg, Geoffrey	Mawby, Ray	Sims, Roger
Fletcher, Alex (Edinburgh N)	Maxwell-Hyslop, Robin	Skeet, T. H. H.
Fletcher-Cooke, Charles	Mayhew, Patrick	Smith, Dudley (Warwick)
Fookes, Miss Janet	Meyer, Sir Anthony	Speed, Keith
Fowler, Norman (Sutton C'f'd)	Miller, Hal (Bromsgrove)	Spence, John
Fox, Marcus	Mills, Peter	Spicer, Jim (W Dorset)
Fry, Peter	Miscampbell, Norman	Spicer, Michael (S Worcester)
Gardiner, George (Reigate)	Mitchell, Davild (Basingstoke)	Sproat, Iain
Gardner, Edward (S Fylde)	Moate, Roger	Stainton, Keith
Gilmour, Rt Hon Ian (Chesham)	Molyneaux, James	Stanbrook, Ivor
Godber, Rt Hon Joseph	Monro, Hector	Stanley, John
Goodhew, Victor	Montgomery, Fergus	Steen, Anthony (Wavertree)
Gorst, John	Moore, John (Croydon C)	Stewart, Donald (Western Isles)
Gow, Ian (Eastbourne)	Morris, Michael (Northampton S)	Stewart, Ian (Hitchin)
Gower, Sir Raymond (Barry)	Morrison, Charles (Devizes)	Stokes, John
Grant, Anthony (Harrow C)	Morrison, Hon Peter (Chester)	Stradling Thomas, J.
Gray, Hamish	Mudd, David	Tapsell, Peter
Griffiths, Eldon	Neave, Airey	Taylor, R. (Croydon NW)
Grist, Ian	Nelson, Anthony	Tebbit, Norman
Grylls, Michael	Neubert, Michael	Temple-Morris, Peter
Hamilton, Michael (Salisbury)	Newton, Tony	Thatcher, Rt Hon Margaret
Hampson Dr Keith	Nott, John	Thomas, Rt Hon P. (Hendon S)
Hannam, John	Onslow, Cranley	Thompson, George
Hastings, Stephen	Oppenheim, Mrs Sally	Townsend, Cyril D
Havers, Sir Michael	Osborn, John	Tugendhat, Christopher
Hawkins, Paul	Page, John (Harrow W)	Vaughan, Dr Gerard
Hayhoe, Barney	Page, Rt Hon R. Graham (Crosby)	Viggers, Peter
Heseltine, Michael	Parkinson, Cecil	Walder, David (Clitheroe)
Hicks, Robert	Percival, Ian	Wall, Patrick
Holland, Philip	Peyton, Rt Hon John	Warren, Kenneth
Hordern, Peter	Pink, R. Bonner	Watt, Hamish
Howe, Rt Hon Sir Geoffrey	Powell, Rt Hon J. Enoch	Weatherill, Bernard
Howell, David (Guildford)	Price, David (Eastleigh)	Wells, John
Hunt, John	Prior, Rt Hon James	Welsh, Andrew
Hurd, Douglas	Pym, Rt Hon Francis	Wiggin, Jerry
Hutchison, Michael Clark	Raison, Timothy	Winterton, Nicholas
Johnson Smith, G. (E Grinstead)	Rathbone, Tim	Wood, Rt Hon Richard
Jones, Arthur (Daventry)	Rees, Peter (Dover & Deal)	Young, Sir G. (Ealing, Acton)
Jopling, Michael	Rees-Davies, W. R.
Kellett-Bowman, Mrs Elaine	Renton, Tim (Mid-Sussex)	TELLERS FOR THE NOES:
Kershaw, Anthony	Rhys Williams, Sir Brandon	Mr. Anthony Berry and Mr. W. Benyon.
King, Tom (Bridgwater)	Ridsdale, Julian

Question accordingly agreed to.

Resolved, That provision be made—

1. (1) for imposing a tax, to be known as development land tax, on the realisation of the development value of land on any occasion where an interest in the land is, or is treated as being, disposed of;
2. (2) for requiring certain bodies, to whom are made certain disposals of interests in land giving rise to liability for development land tax, to deduct amounts on account of that tax from the consideration paid for the disposals, for treating amounts so deducted as having been paid in respect of that tax by the persons liable for it, and for securing that those bodies receive the benefit of the whole of the development land tax paid in respect of those disposals;

(3) for terminating the charges on capital gains from land imposed by Part III of the Finance Act 1974;

(4) for adjusting the amount chargeable to income tax, corporation tax or capital gains tax in certain cases where the whole or part of the amount so chargeable is or has been chargeable to development land tax on the same or a previous occasion; and

(5) for other matters incidental or supplementary to the matters specified in the preceding paragraphs of this Resolution.

Bill ordered to be brought in upon the foregoing Resolution by the Chairman of Ways and Means, the Chancellor of the Exchequer, Mr. John Silkin, Mr. Edmund Dell, Mr. Joel Barnett, Mr. Robert Sheldon, and Mr. Denzil Davies.